Knowledge Process Outsourcing (KPO) involves outsourcing core business activities and highly specialized knowledge related work to third-party professionals. Many businesses today choose KPO to access advantages like cost savings and improvements to the company’s efficiency.
So, what is KPO, and could it be right for your business?
In this article, we’ll explain what KPO is and describe a few different types of KPO services. We’ll also provide some benefits and disadvantages of KPO and explain how KPO differs from BPO. Lastly, we’ll answer some FAQs.
Table of Contents
- What is KPO?
- 6 common examples of KPO services
- 5 key benefits of KPO
- 3 potential disadvantages of KPO
- 3 FAQs about KPO
What is KPO?
KPO involves outsourcing of core, information-heavy business processes to third-party service providers. Businesses contract work to KPO service providers whose staff have advanced education and expertise in specialized areas. It allows businesses to access a larger talent pool of specialists and to leverage lower labor prices.
For example, the owner of a manufacturing business can hire consultants through KPO to analyze their production process and finances. The consultants can give expert advice on improving the efficiency of the manufacturing process and help the business lower production costs and maximize its competitive advantage.
The employees that perform the knowledge process, like lawyers, accountants, data analysts, etc., can be employed by a third-party company. Alternatively, they could be freelancers hired by the company on a contract basis.
So, where can you find such a third-party vendor?
In addition to choosing a KPO company or freelancer domestically, you can also select:
- Offshoring: Contracting work to a third-party individual or company in a far-away country, often to leverage lower labor prices for the same skill set in developing countries.
- Nearshoring: Contracting work to a third-party individual or company in a nearby country outside of your own country.
To understand what KPO looks like in practice, let’s look at some different types of KPO services.
6 common examples of KPO services
KPO is an umbrella term covering many different kinds of services.
Below are six examples of different types of KPO services and how they can help businesses:
1. Data analytics and interpretation
KPO companies offer cutting-edge knowledge and processes to collect and analyze data for your business. They can then provide actionable insight that you can use to improve your business.
For example, a KPO company can perform data analysis to determine the efficacy of your supply chain in terms of factors like:
- Shipping and transportation management.
- Inventory management.
Their actionable insights can help you make your supply chain more efficient and profitable.
2. Market research
Market research, also known as business research, can provide firms with in-depth knowledge about:
- Customer experience, demographics, and needs.
- Changes in the market.
- Potential unexplored markets and verticals (market niches).
The KPO research process includes surveying techniques, statistics, and analytics of the above factors to help you better understand your customers and grow your business.
3. Financial consulting
Financial process outsourcing often involves complex processes that a finance-related KPO service provider can deliver.
Corporate finance consultants can analyze your assets, income, and expenses. They can provide you with a financial plan suited to your business goals.
Investment research also falls under this category. You can work with an investment consultant to get advice on managing your assets and investments.
Other financial KPO services can include:
- Complex accounting and payroll processes.
- Financial modeling.
- Valuation (estimating the value of assets).
4. Management consulting
This knowledge process involves the service provider auditing the client’s current business procedures, making recommendations, and forming a strategy for improvement.
According to Forbes, the work of a management consultant falls into three categories:
- Objective Analysis: Providing unbiased, in-depth research, analysis, and advice about the business’s operations.
- Functional Expertise: Providing guidance on mergers, leadership, reorganization, human resource management, risk management, etc.
- Project Management: Helping business leaders execute projects and measure their success.
5. Advanced data entry and management
Data management specialists can set up efficient systems for storing, retrieving, and sharing data. They can also help you establish reliable data capturing systems. This KPO function can be beneficial in critical industries.
For example, in healthcare, it can help:
- Capture client information accurately.
- Share and retrieve patient files.
- Keep track of patient accounts for invoicing.
6. Legal Process Outsourcing (LPO)
Businesses often outsource a legal process to a specialized LPO provider.
LPO can include services like:
- Drafting and reviewing contracts.
- E-discovery (collecting digital evidence for legal processes).
- Litigation support.
Each type of KPO could have practical applications in different industries, including healthcare, engineering design, manufacturing, and more.
But how and why do businesses use KPO?
Let’s now explore how KPO solutions can help your business.
5 key benefits of KPO
Here are five significant advantages that KPO provides:
1. Improved efficiency
KPO can help improve efficiency in your business in several ways.
First, through advanced business processes analysis, your outsourced, skilled employee can help you understand if your company is operating optimally. You can make changes to ensure everything flows smoothly, from procurement to sales and management tactics.
For example, KPO specialists can work with a manufacturing business to look for things like:
- Unnecessary waste of materials.
- Opportunities for extra training.
- Poorly organized spaces and systems.
- Lack of standardized processes.
- Issues with suppliers.
They’ll know how to make recommendations for improvements to the manufacturing process from start to finish.
Meanwhile, you free up your in-house staff and management team to handle their existing tasks without extra strain.
2. Better results at a lower cost
KPO, especially when offshored, can help businesses reduce operational costs and improve profitability.
This is because there’s a vast pool of qualified and skilled professionals in countries with relatively low labor costs compared to countries like the United States and the United Kingdom.
You can hire an experienced offshore team to handle a knowledge process at a fraction of what it would cost in your own country.
For example, a financial analyst’s average monthly salary in the US is approximately $10,500. In India, a popular financial services outsourcing destination, the average is only about $520. In general, the average salary in India is around 179% lower than in the US.
However, even if you outsource within your own country, KPO can save you money.
When you outsource to a third party, they’re responsible for their employees and infrastructure. This means you don’t have to pay for things like:
- Office space.
- Employee salaries.
You only pay for the service itself, based on an outsourcing agreement.
When you’re saving money and boosting efficiency, you also increase your business’s overall profitability.
3. Increased access to qualified specialists
When it comes to specialized knowledge in a particular field, it can be challenging to find qualified experts. There may be a lack of experts seeking employment in your region.
KPO lets you find experts worldwide. It makes the process easier because you only need to find a service provider who provides you with the qualified staff members you need.
4. Ability to leverage up-to-date methods
KPO service providers are equipped with the latest technology and methods. This enables you to keep up with industry breakthroughs, improving your competitive edge.
Additionally, you don’t have to sacrifice your time and money to research new methods or purchase new equipment.
5. Access to new markets
Outsourced experts can help you discover new markets to expand your business. Your KPO partners should be specialists in your industry and may therefore possess knowledge where you have blind spots.
Additionally, if you choose to offshore your KPO, you can discover new markets internationally that you otherwise wouldn’t have access to.
However, like any outsourcing process, there are some risks associated with KPO. Let’s look at some possible KPO disadvantages.
3 potential disadvantages of KPO
Here are three possible challenges you could encounter with KPO.
1. Security concerns
Since KPO concerns core business functions, the data involved can be extremely sensitive. Security risks may occur when you include a third party in your business. The vendor could share Intellectual Property (IP) or other proprietary information outside the company.
In the case of offshoring, security protocols and IP laws may differ from country to country. That’s why offshore KPO service providers must be compliant with the offshoring regulations of the countries their clients reside in.
For example, outsourcing companies providing services to or from the European Union (EU) must be familiar and comply with EU outsourcing regulations. This is why it’s essential to properly research a KPO firm before forming a partnership.
To protect your business, you can take measures like:
- Ask the provider about their data security and compliance protocols.
- Check the KPO provider’s past client testimonials.
- Seek legal aid to draw up an airtight security clause in your outsourcing agreement.
2. Communication difficulties
Communication difficulties caused by language barriers, time zone differences, and cultural differences are more common with offshore KPO. However, even in the case of domestic outsourcing, communication difficulties can arise due to dialects, accents, or work culture differences between both organizations.
Overcoming communication difficulties can be a simple matter of choosing the right outsourcing partner, ensuring language compatibility, and professional synergy. It also helps to choose the right communication tools to convey information and progress.
You can also establish a strong agreement that explicitly lays out details like:
- Approved communication channels.
- Project timeframes.
- Key Performance Indicators (KPIs).
This way, you can ensure that the KPO firm understands how to communicate progress and problems effectively.
3. Quality control issues
Another potential issue in a KPO partnership is that you may ultimately not be satisfied with the service you receive. This can be because you don’t have direct control over the outsourced company’s workflow.
However, you can avoid such problems by:
- Understanding the KPO provider’s processes.
- Discussing how their work should combine with yours.
- Researching their reputation.
- Defining explicit expectations in a Service Level Agreement.
It can also be challenging to ensure your remote service providers are using time productively, which can contribute to low-quality deliverables. Time tracking tools with productivity monitoring features, such as Time Doctor, can provide a solution.
Now, KPO is an outsourcing process, so you may wonder how it differs from Business Process Outsourcing (BPO).
Let’s now address this, and some other commonly asked KPO questions.
3 FAQs about KPO
Here are some questions frequently asked about KPO:
1. How does KPO differ from BPO?
BPO refers to contracting any business process to a third-party service provider.
KPO is often referred to as a subset of BPO. However, there are distinctions between these two forms of outsourcing.
In general, BPO services involve two types of non-core business processes:
- Back-office services: Processes that don’t involve customer interaction, such as administrative tasks and data capturing.
- Front-office services: Processes like customer service and marketing that require the staff of the BPO company staff to interact directly with customers and clients, like customer service and marketing.
KPO jobs tend to be more complex since they involve core business functions. The service providers may also play a role in decision-making or advising.
A typical example of a BPO service is a BPO call center. BPO call center agents can take customer support calls, provide basic technical support, or make marketing calls. In comparison, KPO call centers may handle more specialized subjects like advanced technical support and in-depth customer support.
Let’s look at them side-by-side:
|Process-based front and back-end services.
E.g., customer service, technical support, sales.
|Knowledge-based analysis and research services.
E.g., management consulting, financial consulting, market research, analytical services.
|Basic qualifications, good communication skills, basic computer skills.
|Highly-specialized professional qualifications and technical skills.
|High volume of work at low cost.
|Quality of knowledge, experience, and judgment.
2. When should businesses consider KPO?
Business circumstances that may call for a KPO a solution include:
- Limited resources: When the knowledge process you require involves expensive overhead costs, you can outsource to a company already investing in those resources.
- Insufficient expertise: When your company doesn’t have enough skilled workers to complete the knowledge process, you can outsource to experts without further burdening your in-house team.
3. What regions are particularly prominent in KPO?
Different countries tend to have reputations for different strengths regarding outsourcing. For example, India is a popular destination for software development outsourcing. The Philippines is highly-regarded for its BPO sector and is growing in its KPO sector.
Here are some other countries that are well-known in the KPO industry:
- Asian countries: Malaysia, Sri Lanka.
- Eastern European countries: Poland, Romania.
- South American countries: Mexico, Brazil.
Outsourcing a core business process to a specialist third-party service provider can offer numerous benefits. KPOs (Knowledge Process Outsourcers) can improve efficiency, increase profitability, as well as provide access to technical knowledge and resources.
However, there are also some obstacles to look out for. That’s why it’s crucial to thoroughly research providers and weigh the pros and cons before diving into a KPO partnership.
If you’re considering KPO for your business operations, use this guide to help you make informed decisions.
Liam Martin is a co-founder of Time Doctor which is software to improve productivity and help keep track and know what your team is working on, even when working from home.